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The growth and globalisation of wealth over the last two decades has seen ultra-high net worth families establishing and implementing increasingly sophisticated asset holding structures and wealth planning strategies. Advice is often focused on tax mitigation, investment growth, succession planning and philanthropy. But is sufficient consideration being given to the potential impact a divorce may have on a family’s wealth?

In my opinion, asset protection is not high enough up the agenda. Too often, asset protection in the context of future family litigation – or “divorce proofing” wealth – is not on the agenda at all. This is perhaps surprising given that English divorce proceedings arguably pose the single biggest threat to family wealth.

What is at stake? 
A lot. On divorce, the English court has very broad discretion when dividing wealth. Ultimately, the court will seek to achieve “fairness”. An equal division of assets will only be departed from if there is a good reason for doing so. Wealth accrued during a marriage is now normally shared. But it does not stop there. All assets - wherever and however they are held - are potentially in the pot. Unlike many other jurisdictions, “non-matrimonial” wealth - such as pre-acquired, gifted or inherited assets - can be divided to meet a claimant spouse’s needs. All of this has, over the last 20 years, led to a number of very substantial financial awards being made and, rightly or wrongly, London earning its title as the “Divorce Capital of the World”. 

It is well known that, in certain circumstances, prenuptial agreements can be used as effective asset protection tools. However, despite widespread belief to the contrary, these agreements are not automatically binding in England. Broadly speaking, the court should now uphold the terms of a PNA which has been freely entered into with a full understanding of its implications unless it would be unfair to do so. There has certainly been a move over the last 10 or so years towards courts placing increasing weight on these agreements. 

There are, however, a number of important points which must be considered if a PNA is to prove effective. 

Planning ahead is key. Too often PNAs are done at the last minute or “on the cheap”. This is fraught with risk, particularly when substantial wealth is at stake. As the law in relation to PNAs continues to evolve, this work has become increasingly complex and nuanced. It is important that those considering a PNA obtain advice from specialist lawyers who routinely deal with this type of work - and in good time. 

Ideally, a PNA should be executed at least 28 days before a marriage to avoid possible arguments around duress and pressure later on. Careful thought will of course need to be given as to how and when the issue of a PNA will be raised. I suggest discussions should start at least six months before a wedding and ideally earlier if there are particularly complex or international angles involved.  
 

Advisors need to manage expectations and stay a few steps ahead. This often involves asking the difficult questions and giving firm (but diplomatic) advice. What if, for example, a client’s fiancé refuses to sign a PNA and the relationship ends as a result? Or if a client provides instructions very late in the day and the wedding is postponed? These are all tricky issues which require sensitive handling. 

Be careful what you say. In the event of a divorce, the court is likely to see the lawyers’ files relating to the PNA (not just the agreement itself) and, also, communications directly between the parties. The paper trail is key if later on (and as is often the case) there are arguments around misrepresentation, pressure or even fraud. At the outset, advisors ought to be aware of and see all communications between the parties which make any reference to the PNA. What may at the time seem like a fairly benign message such as - “I’m only entering into this because your family are forcing us to” - may, later down the line, prove to be damaging evidence of duress or pressure which could render the PNA useless. 

Provide some balance. Too often these agreements are entirely one sided. Suitable financial provision - which at the very least meets needs - should be included in any PNA. Without that, a PNA will almost certainly be considered unfair and, accordingly, afforded very little or no weight by a court. It always pays to include sensible and responsible financial provision. This will always be fact specific and relative to the family in question. But reasonably generous provision (of say £10 million ($10.44 million)) is very little compared with what could be at stake for UHNW families if a PNA does not make proper provision and is given very little weight in the event of a divorce. 

Particular issues will need to be considered when internationally mobile families are involved. Where a divorce takes place can make a huge difference in terms of financial outcome. As a result the (perhaps controversial) practice of “forum shopping” - where a party issues proceedings in the jurisdiction which is most advantageous to them - has become increasingly common. For the reasons outlined above, England is still regarded as being financially very generous and is currently seen as the divorce forum of choice for many claimant spouses. The issue of jurisdiction (and where parties agree any divorce will proceed) will need to be dealt with in the PNA and, if well drafted, should reduce the risk of “forum shopping” in the event of a divorce. 

Do not assume an English PNA will be enforced by a foreign court in the event of a divorce abroad. For those with international connections, it will be important to ensure that specialist foreign advice is obtained. The English PNA will need to be drafted in such way so as to increase the likelihood that, if necessary, it will be recognised and enforced by a foreign court. In certain circumstances, it may be necessary to obtain a ‘mirror’ PNA in the countries with which a couple has connections. 

Similarly, it is often assumed that foreign PNAs will bind an English court. That is not the case. The English court will not apply foreign law. Instead, the foreign PNA will be looked at against the English concept of “fairness”. International families who have already executed a PNA (or submitted to a particular matrimonial property regime) in another country should be obtaining advice on how the English court might treat that agreement. It may be necessary to have an English postnuptial agreement executed to ensure comprehensive and robust protection is in place. 

The stakes are high. The risks are clear. For wealthy international families an English divorce could turn out to be financially disastrous. Sensible and responsible asset protection should be well up the agenda. Carefully considered and well drafted PNAs can significantly mitigate the risks highlighted and, in my view, should now be considered a vital component of family governance and wealth planning. 

About the author
Ruben Sinha focuses on advising UHNW clients, family offices, professional trustees and private banks in complex asset protection and family cases. Over the last few years, he has been involved in a number of high profile and reported cases, some of which have shaped the law in these areas. He has developed a niche with a focus on work at the ‘intersection’ of the traditional family and chancery spheres, often advising on matters involving overlapping matrimonial and private client issues. Sinha’s focus is on asset protection to ensure that wealth is preserved in the event of family disputes. He is also involved in complex high-value cross-border family litigation. Sinha has a particular interest in cases involving offshore trusts and has significant expertise advising professional trustees in the context of divorce.